Friday, March 08, 2013

Terminological Inexactitudes

"As the independent Office for Budget Responsibility has made clear, growth has been depressed by the financial crisis, the problems in the Eurozone, and a 60 per cent rise in oil prices between August 2010 and April 2011. They are absolutely clear that the deficit reduction plan is not responsible. In fact, quite the opposite."

Oh dear, oh dear, oh dear. Surely someone should have checked the facts before putting that in Mr Cam's speech.

Of course, that figure of 1.4% is only an estimate, and as the OBR explains, different left and right handed economists have a wide range of opinions as to what the true figure might be. But the key point is that our PM should at least have checked the OBR's view before quoting them as a reference.

In reality, while the financial crisis, the Eurozone crisis, and the oil price hike have severely dented GDP, not many doubt that the deficit reduction plan has also had a depressing effect: spending cuts and tax increases tend to do that. As always with fiscal retrenchment, it's a question of short-term pain against the long-term gain of lower deficits and - in the case of spending cuts - lower taxes.

Ironically, the OBR estimates do support another point that Mr C might have made. And that is that it was Labour's deficit reduction plan - the plan Mr C inherited - that was responsible for the bulk of that 1.4% GDP reduction. Because as the OBR notes:

"Discretionary consolidation between 2009-10 and 2011-12
was planned to be 2.8 per cent of GDP at the time of Labour’s last Budget. The
Coalition increased this to 3.7 per cent of GDP in June 2010."

In plain English: 75% of the deficit reduction measures through to 2011-12 were Labour rather than Coalition decisions. Despite what Balls and Millie might inexactitudinally suggest, most of the deficit reduction plan was down to them rather than the evil Tories.

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